Over the past decade, the position of traditional sourcing areas for many products has come under threat due to huge increases in labour and energy costs. At CMX Consulting we see a growing number of our customers are starting to look for other options. As a consequence of focused efforts of the Indian government to make the country more attractive for sourcing, India ranks high on their list of alternative sourcing regions.

Comparing sourcing regions

When evaluating the pros and cons of possible sourcing areas, the first item to consider is, of course, total manufacturing cost Ð a parameter that is highly dependent on wages and energy prices. But many other factors should be taken into account, including the overall business environment, port facilities, general infrastructure, weather and climate, and problems with corruption. For each of these, one should not only look at the current situation but also at the trend for the near future. Indonesia, Thailand, Vietnam and India all have labour costs that are lower than e.g. China’s, and among these four India stands out for a number of reasons.

Opportunities and challenges in India

India is forecast to be the world’s third-largest economy by 2030 and over half its population is younger than 25. This demographic is a driving force for a growing consumer market, expected to be the fifth-largest globally by 2030. Looking at manufacturing and export, we see that the country today is the 19th-largest exporter globally. It has the ninth-largest aviation market in the world and is the seventh-largest vehicle-producing nation. Textile manufacturing is the second-largest source of employment, after agriculture. With a nominal Gross Domestic Product of currently USD 1.800 billion, which is expected to double to USD 3.600 billion by 2020 at an unprecedented annual growth rate of 9%, India is clearly a force to be reckoned with.

Generally speaking, soft goods are supplied from the South of India and hard goods from the North. Many experienced suppliers in India are already serving severalÊglobal multinational companies.

Historically, India’s potential as a sourcing region has been hampered by its performance in the area of secondary, non-cost factors: the overall business environment, ease of doing business, logistics performance and the influence of corruption. The good news is that recent Indian governments have had a serious focus on overcoming these handicaps. The Make in India initiative, launched in 2014 to encourage foreign companies to manufacture their products in the country, is only one example.

The Make in India logo.

Upgrading India’s infrastructure

With the world’s largest railway network, comprising 115,000 km and 7172 stations, and the world’s second-largest road network, covering more than 4.7 million kilometres, the size of India’s infrastructure is impressive. Its quality, however, leaves much to be desired, as is demonstrated by the fact that only 55% of the total port capacity is utilised due to limitations in the infrastructure. Here, too, large investments have already been made. Results worth mentioning are the Dedicated Freight Corridor, with a total length of approximately 3300 km of railways, and the Golden Quadrilateral, a highway network connecting major industrial, agricultural and cultural centres.

Dedicated Freight Corridor (DFC)

With 3300 km of dedicated freight railway, the DFC represents a major improvement in India’s rail infrastructure.

The Golden Quadrilateral*

* Launched in 1998, The entire length was operational by January 2012ÊThe Golden Quadrilateral, connecting four major cities, Êis the backbone of India’s road infrastructure.

A New India

Looking at the overall picture, one can see the contours of a new India emerging Ð an India that qualifies as an attractive sourcing location. In addition to infrastructure that will soon be adequate, India can also benefit from a large pool of well-skilled labour, a stable political climate, an improved atmosphere for doing business, and an abundance of raw materials. This combination of characteristics makes it well suited for manufacturing specific categories of products.